How To Build A Billion Dollar Hedge Fund From Scratch | Dan Rasmussen

Episode Summary

Executive Summary: Dan Rasmussen explains how Verdad Capital grew from an $8M launch into a billion-dollar firm by using research-driven, contrarian public-market strategies that mimic the historical return drivers of private equity: small size, leverage, and cheap entry valuations. He emphasizes authenticity, outsourcing, and publishing research as both an investment and business-development engine.

Main Topics: Founding Verdad and choosing a contrarian path (Priority: 5/5): Rasmussen says he launched Verdad in 2013-2015 from a contrarian streak, choosing small-cap value and research-intensive investing over more fashionable VC/SaaS/Bitcoin opportunities. Private equity as the intellectual model (Priority: 5/5): He argues private equity returns historically came from buying small, cheap, levered businesses, and that Verdad tries to replicate those factors in public markets rather than mimic PE operating expertise. Fundraising, product-market fit, and firm-building (Priority: 4/5): He describes raising the firm’s first capital from personal and professional networks, focusing on broad outreach rather than trying to perfectly target allocators. Lean operations and outsourcing (Priority: 4/5): Rasmussen explains that modern hedge funds can outsource compliance, middle/back office, and data infrastructure, allowing smaller teams and lower fixed costs. Research production as the core engine (Priority: 5/5): The firm’s weekly research output comes from internal investment research, client questions, and independent curiosity; everyone contributes, with Rasmussen heavily editing and outside support handling copy editing. Authenticity, compliance, and marketing (Priority: 4/5): He frames research publishing as an authentic way to build relationships and brand awareness while staying within compliance boundaries, contrasting this with generic hedge-fund secrecy. Mistakes, persistence, and learning (Priority: 3/5): Rasmussen says business-building is a process of repeated errors; persistence and feedback are more important than avoiding mistakes altogether.

Key Arguments: Private equity’s historic outperformance is best explained by three quantifiable factors: small size, leverage, and buying at discounts to public markets. If PE now buys smaller businesses at similar or higher valuations than public markets, its historical alpha may be harder to sustain. Operational improvement is overrated as the main source of PE returns; capital-structure engineering and M&A are more plausible drivers. A public-market strategy can mimic PE’s return drivers more cleanly by buying small, cheap, levered public companies. Modern fund formation no longer requires a large fixed-cost infrastructure; outsourcing makes lean launches more viable. Broad outreach is more effective than over-optimizing for a presumed allocator profile because fundraising conversion rates are low. Publishing research helps attract investors by revealing the manager’s authentic thinking and building trust over time. Compliance is mainly about avoiding deceptive conduct; well-sourced, factual research is generally aligned with the rules. Frequent publishing and feedback improve research quality over time, making the output stronger than early work. Being early in a thesis can look wrong in the short run, but long lockups and delayed realizations can validate the view later.

Data Points: Launch capital: $8 million - Approximate amount Rasmussen says he cobbled together to start Verdad Capital. Firm milestone: First billion-dollar firm on the show - Host notes Verdad is the first billion-dollar firm featured on Other People's Money. Business-school period: 2013 to 2015 - Rasmussen says he was at Stanford during the period when he founded Verdad. Private equity leverage: ~60% net debt to enterprise value - Rasmussen cites this as a typical PE leverage level versus public markets. Public-market leverage: 10-15% levered - He contrasts this with typical leverage in public markets. Historical private/public valuation gap: ~40% discount - He says private companies historically traded at about a 40% discount to public markets. Initial outreach multiplier: 1,000 people - He says he focused on reaching a broad audience rather than optimizing for a small target list. Expected fundraising conversion: 99 out of 100 people say no - Used to explain why broad reach matters more than narrow targeting. Interns hired as full-time analysts: 3 to 4 - He says a small number of interns later returned as full-time employees. Internship scale: Harvard, Yale, and Stanford mainly - He describes where the firm’s internship program primarily recruits from. Research volume: Over 200 pieces (2016-2020 counted manually) - The host says he manually counted more than 200 research pieces in that span. Weekly research cadence: Weekly, with earlier years less frequent - The host notes the firm’s research eventually became weekly and grew over time.

Pivotal Quotes: "I think there are people that are persuaded by data too." — Dan Rasmussen: He describes the kind of investors and thinkers who resonate with Verdad's research-driven approach. "No one’s out there to steal your stuff. People are out there to learn from each other in a collaborative way." — Dan Rasmussen: He explains his openness to publishing research and why he is not afraid of idea theft. "The process of doing anything is the process of making a ton of mistakes and doing things wrong." — Dan Rasmussen: He discusses entrepreneurship, learning, and the inevitability of errors when building a firm.

Implications: For listeners, the episode argues that differentiated research, authenticity, and lean operations can build a durable asset-management business. Industry-wide, it suggests public markets can replicate some PE return drivers and that transparency may be a competitive advantage.